Adam Smith Goes To Czechoslovakia

For years, Czechoslovakian soldiers were taught to detect bombs and analyze chemical weapons in a shabby gray building tucked away in central Prague. But since the 1989 revolution that toppled the country's Communist regime, 22 Konviktska has been turned into a very different kind of school.

Workmen have wheeled off the plaster statue of Lenin and pried loose the papier-mache hammers and sickles from classroom walls. Instructors have swapped the teachings of Karl Marx for those of Adam Smith. And instead of Soviet-designed AK-47s, the next crop of graduates soon will wield American-style MBAs.

Be it ever so humble, 22 Konviktska is now home to the newly formed U. S. Business School in Prague (USBSP), where students who have spent their lives in a centrally planned economy are learning the basics of the free-market system. "The socialist system has failed," says Ludek Holcner, a scraggly-bearded architect from the industrial city of Brno. He was one of 66 students chosen from more than 700 applicants to join the first class. "Now, we must look elsewhere for answers," he says.

The new school, taught by a rotating band of visiting professors from the U. S., is part of a stampede of American and Western European business schools rushing to provide those answers. But nowhere is the ideological swing from communism to capitalism quite so extreme as at the Prague school, set up under the auspices of the Czech Technical University and Rochester Institute of Technology.

Here, many professors espouse a brand of free-market economics that's considered far-right even in the West. Instructors such as Victor Tabbush from the University of California at Los Angeles and Roman Weil from the University of Chicago subscribe to what is known as the Chicago School, a body of laissez-faire economics developed at the University of Chicago. Its leaders, Milton Friedman and George J. Stigler, embrace a zealous form of free-market theory. They argue against rent control and advocate privatization of state-owned transit systems and highways. Their work, and that of other conservative economists, helped provide the theoretical underpinnings for Reagan's economic revolution.

So the school is hardly dishing up standard B-school fare. But then, its students are hardly the typical MBA bunch. Forget tassled loafers and horn-rimmed glasses: Long hair and work boots are in at the USBSP. Many students are a decade older--some even two or three--than the average American MBA student, and boast advanced degrees. There are mathematicians, physicists, nuclear engineers, and even a few professors in this class of 60 men and six women. All speak English, which is mandatory, since the school's professors don't speak a word of Czech or Slovak.

For many students, the opportunity cost is steep: Tuition is some 14,000 korunas, the equivalent of about $549, or roughly four months' salary for an average worker. More important, most of the students quit their jobs to join the program, and few received promises of employment after graduation. Just ask 40-year-old Marian Zajko. He has taken a major risk in giving up his tenured post at the Bratislava School of Economics. The decision has put a financial and emotional strain on his wife and three children, who live hundreds of miles away. "My dean said it was absolutely useless to go to a school like this," Zajko explains. But like many of his fellow students, he sees the transition to a market economy as inevitable. "My economic qualification has worn out to nearly zero," he says.

'GREAT DEBATE.' U. S. educators, in turn, see an opportunity to influence Eastern Europe's best and brightest. They realize that the real battle of ideas in Eastern Europe these days isn't between Marxists and capitalists, but rather among differing views of how to transform a planned economy into a market economy. And while the school will churn out just 70 or so MBAs every nine months, the influence of those graduates is likely to far outweigh their number. "There's a great debate going on here," says USBSP President Richard N. Rosett. "What we're after is to create an informed population to participate in it."

The school has snagged some students who are already key participants. One is Krzysztof Biczyk, a 29-year-old economist with Poland's Transportation Ministry, who will be helping to make the decisions about how to privatize Poland's industry once he gains his MBA. "There are no patterns to solve our problems," says Biczyk. "This course will give me a special point of view of a market economy."

That view is shared by Eastern Europe's most outspoken free-marketer--Czechoslovakia's Finance Minister Vaclav Klaus. He fretted about the lack of managers trained to run his country's newly privatized businesses. That concern reached Lubosh G. Hale, a former Czech dissident and top government economist who was forced into exile after Soviet tanks rolled into Prague in the spring of 1968. Hale moved to the U. S. and became the University of Chicago's dean of students. With Prague's recent turn to capitalism, Hale brought the problem to Rosett, a longtime colleague, and they set out to start a school.

NO FAX. It's been no easy task. The school's U. S. headquarters are at RIT, where Rosett is the business school's dean. Classes had already begun before it was decided that the MBA degree would bear the stamp of RIT. Money is still a problem. The school needs $6 million to cover operating costs for five years. Yet despite help from corporate philanthropists such as the Anheuser-Busch Foundation, the school has raised only $900,000 so far. Some of the visiting professors, put up in modest youth hostels for their three-week stays, were dismayed to find that the school had no fax machine, no copier, and only one working telephone to go around for everyone.

These problems help explain the sense of relief some of the school's founders felt on the first day of classes in March. The dignitaries retired to a dusty anteroom to celebrate with open-faced salami and pickle sandwiches and Becher, a spicy alcohol popular throughout Czechoslovakia. It was barely 8:30 a.m., but second and third shots were consumed with a certain Slavic gusto. "The baby is born," exulted Hale. "Fifteen months, nine days, and four hours in gestation, but it is born!"

The students, meanwhile, began battling the basics of lifo vs. fifo in their stuffy, shoebox-shaped classroom. From the beginning, it was clear that the USBSP's teachers were unlike most they had seen before. Weil, an Alabama-born accounting professor at Chicago, startled students with his informality, asking one to toss him a pen across the classroom. He also surprised them with his irreverent definitions: "Accountants," he explained, "like to measure irrelevant things with precision. You don't need to be a capitalist to understand that idea."

Other ideas were more difficult to understand, especially for people who had grown up in a system where prices and wages were fixed by authorities. "Have you heard the concept of the invisible hand? Adam Smith?" asked UCLA's Tabbush. He tried to explain that the most efficient guide of an economy's limited resources is the price system, with minimal government regulation. Several hands shot up. "But the market sometimes does not work as we would like it to work?" asked a student. "The market fails far less often than central planning fails," answered Tabbush.

In the end, of course, teaching comes down to a teacher in front of a class: All the rest is frills. Within days of the school's opening, a sense of frustration begins to pervade the air. The classroom is warm, and Weil is pounding a question from an earnings-statement problem at the same student over and over again. The students realize they're in for a painful grind that they are only just beginning. "My head feels like a watermelon," says Iva Halouskova during the break. Not such a different feeling, really, from the ones felt by B-school students anywhere.

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